RBNZ: August MPS will leave the door open to further interest rate cuts - Westpac

Imre Speizer, Research Analyst at Westpac, notes that yesterday the RBNZ released a short economic update, providing fresh guidance on monetary policy.

Key Quotes

“The statement made it clear that the strong NZD is undermining the outlook for inflation, and that another OCR cut at the 11 August Monetary Policy Statement is likely.

The statement noted that the trade-weighted exchange rate is 6% higher than had been assumed in the June MPS, which will put further pressure on exporters and reduce tradables inflation. The RBNZ was quite blunt about the implications: "This makes it difficult for the Bank to meet its inflation objective.”

We have for some time maintained the view that the OCR would be cut to 2% in August, and yesterday's statement seals the case. It also seems likely that the August MPS will leave the door open to further interest rate cuts if the currency remains elevated.

Of particular interest will be the shift in its 90 day interest rate projections. Right now, a 6%-above-forecast TWI implies a drop in the track of 60bp!”